Wednesday, August 31, 2016

I am spending a few days in the US (leisure plus an academic conference). When I arrived at the Boston airport a few days ago, just after leaving the aircraft we were stuck in a very slow line that ended in the immigration interrogation. Above the line there was a TV screen with the CNN on, precisely at the moment in which Donald Trump was giving a speech about "securing our borders." At that moment, it seemed to me difficult to secure the borders even better than they are. Even if Trump were to win the election, the system of checks and balances, I believe, would make it very difficult to introduce dramatic changes in a system that is relatively strict already in my view. More than the immediate policy concerns, my worry is the deterioration of political discourse and social trust that politicians like Trust implie. His probability of winning the election according to the best political statisticians is now around 22%. If the election was today, he would not win. But incorporate to the statistical model a couple of public relations tricks and a big terror attack and the probability can easily jump, in a very volatile political atmosphere. Before the party conventions in July, the probability was close to 50%. Trump is just one chain in the global exchange program of national-populism. He was visited recently by Nigel Farage and by the leader of the Italian Northern League. Rumours of Vladimir Putin supporting Donald Trump are consistent with financial links between the Russian leader and some Trump aides, as well as by statements of the American tycoon praising Putin. The main message of all these populist leaders is that "good fences make good neighbours." The policy details are scarce and usually inconvenient to them: "I will fix this and that; we will take back control"... It is not easy to see how all this wave is going to be stopped. As Louis Putterman (someone I expect to meet at the Conference I am attending this week-end) says in "The Good, The Bad and the Economy", what is wanted is this: "idealists who are not satisfied with easy answers."

Friday, August 26, 2016

In the last issue of the Journal of Economic Perspetives, Golman et al. have an article about the preferences for believe consonance, where they explain the reasons for the potency of small differences: "Some
of the most vociferous disagreements occur between people who—at least from an
outsider’s perspective—would seem to have very similar beliefs. In the studies
just cited examining the source of armed conflicts in the world, for example, almost
half of these conflicts were between different sects of groups within the same
broad religious tradition. Drawing attention to the nastiness of disputes
between people holding nearly identical views, Sigmund Freud referred in The
Taboo of Virginity (1917 [1991]) to the “narcissism of small differences,”
commenting that “it is precisely the differences in people who are otherwise
alike that form the basis of hostility between them.’’ The sociologist Pierre
Bourdieu made a similar point in his treatise La Distinction (1979, English
translation in 1984, p. 479), observing that “social identity lies in
difference, and difference is asserted against what is closest, which
represents the greatest threat.” Empirical research from social psychology and
anthropology has documented the surprising potency of small differences. In a
1982 overview article in social psychology, Tajfel summarizes the results of
three experimental studies that all find evidence for the importance of small
differences for intergroup hostility (Turner 1978; Turner, Brown, and Tajfel
1979; Brown, as reported in Brown and Turner 1981). The studies find that
groups with similar values display more intergroup discrimination in
competitive situations than groups with dissimilar values. They also show that
group members are more ready to sacrifice self-interest for the collective
benefit of the in-group when they are dealing with outgroups that are more similar
to the in-group. Further evidence of the potency of small differences comes
from research by psychologists on “horizontal hostility.” In a series of
surveys, White and Langer (1999) and White, Schmitt, and Langer (2006) find
that members of minority groups express more unfavorable attitudes about
members of other minority groups than about members of majority groups. In
particular, people express more hostility toward other minority groups when the
other minority groups are more mainstream than their own group. The pattern of
horizontal hostility is also evident from a study of members of political
parties in Greece by White, Schmitt, and Langer (2006). The authors asked eight
party members from each of the four main parties to give a 10-point rating for
the social traits of honesty, intelligence, fiscal responsibility, and
attractiveness of hypothetical candidates from different parties. Again they
find strongly negative evaluations of potential members of similar, but
more-mainstream, parties.

In
real conflicts, the most comprehensive and systematic investigation of the
importance of small differences was undertaken by the Dutch anthropologist
Anton Blok (1998, 2001), who drew on existing datasets and empirical findings
on the basis of which he concluded that “the fiercest battles often take place
between people who have a lot in common” (Blok 1998). In the civil wars in the
former Yugoslavia, for example, the most severe fighting took place in the
regions that had the smallest differences in ethnic and religious composition
between groups and the highest incidences of mixed groups and intermarriages
(Blok 2001; Hayden 1996). The differences that divide the fighting parties in
many other conflicts are also minor: for example, between the Uzbek minority and
the Kyrgyz majority in the conflict in Kyrgyzstan; between Indians and
Pakistanis in the conflict in Punjab; between the Greeks and the Turks in the
conflict in Cyprus; and between Tutsis and Hutus in Rwanda. The historian
Gerard Punier (1995) argues, in his book The Rwanda Crisis, that the genocide
in 1994 happened after a period in which economic and social differences
between Hutus and Tutsis had narrowed. He discusses how the two groups had long
lived side by side, had been involved in intermarriages, and how they neither
have had separate homelands, languages, or religions. In all these conflicts,
subtle differences in beliefs are often the major distinguishing feature, and
in some cases the only difference, between the fighting parties. Hatred and
suspicion based on these belief differences seem to increase in intensity the
more similar the groups are on other dimensions."

Monday, August 22, 2016

If the European Union had competed with a single team in the Rio Olympic Games it would have obtained a total of 325 medals, including gold, silver and bronze. That would make team Europe the leader of the medal count. The second would be the United States with 121 medals, far behind. This is obtained from adding the total number of medals of each EU country in the games that finished yesterday. That includes Great Britain, which is still today a member of the EU, because despite the (very narrow) result of the Brexit referendum, the United Kingdom is still a member of the Union, since their leaders are reluctant to invoke article 50 to start real exit negotiations. If we (incorrectly) substract the British medals, the EU would have 258 medals, still 137 more medals than the US. It is European fragmentation that creates the sensation of US absolute global dominance. In fact, Europe is richer and stronger, except that lack of cohesion and nationalism prevents us from showing a more united and stronger front. Moreover, if the EU had a common sports policy, European team sports would be much better, assembling really competitive teams in basketball (combining the best Spanish, Croatian, Greek, French and Italian players), in soccer (combining the best German, Spanish, Italian and other players) and in other sports. Of course, having a EU team would reduce the number of countries in the Olympic games. This would be a good thing: the opening and closing ceremonies would take shorter and be less boring, and the scale of the games would be reduced, diminishing the power of the sports governing bodies and their incentives for corruption. Narrow-minded nationalist comments by local broadcasters would be kept to a minimum, and economies of scale would reduce the amount of waste that goes into professional sports subsidies in European countries. Additionally, some US swimmers would feel less arrogant and consequenlty would tell less lies.

Thursday, August 18, 2016

Now I understand why I always liked Star Trek. It makes me happy that the message of people cooperating at different levels is not limited to Planet Earth, but it goes beyond our own galaxy and extends to the whole universe. The screenplay writer Simon Pegg explains in an interview that the new productions of the mythical series make more explicit than ever a federalist message opposed to populists of the sort of Boris Johnson, one of the leaders of the Brexit campaign and the current Foreign Affairs secretary of the UK. I have to go and see the new movie. The starship Enterprise was like a federalist capsule in my youth navigating the universe trying to bring harmony and reason to rogue planets and tribes. The members of its crew were representatives of diffirent planets and civilizations, and they were helped by a humanoid android, Mr. Data. I guess that lots of people will like the message of Star Trek as it applies to other planets, but many spectators will still be reluctant to apply the same principles to their own countries. I can even imagine Mr. Johnson praising the new movie and the whole series and arguing that he has nothing against applying federalism to the universe, as long as the UK keeps full control of immigration, or something of this sort. That is the main strategy today of national-populism: global federalism is fine, as long as we apply it to others.

Monday, August 15, 2016

In my modest opinion, economist Dani Rodrik is taking the wrong exit to his own trilemma. It is absolutely true that there is a tension between democracy, the nation-state and globalization. In theory, one solution is to try to stop globablization and focus democracy on the nation-state, as Rodrik seems to try to be arguing for. He talks about the false promise of global governance, and there is little doubt that there is little democracy currently in global governance. But we have little choice but to try to improve it. It is not that democracy in nation-states is all that wonderful. Democratic countries are still a minority. Non-democratic ones are scary, and they are more scary the less well developed and democratic global governance is. Nation-states promote nationalism, which has proven not to be very healthy for civilization. Many borders are disputed and there are secessionist tensions that undermine democracy pursuing the myth of the free nation-state. The Balkan wars are a sad reminder of that. Rodrik argues that "perhaps the biggest policy letdown of our day is the failure of
governments in advanced democracies to address rising inequality. This, too,
has its roots in domestic politics – financial and business elites’ grip on the
policymaking process and the narratives they have spun about the limits of
redistributive policies." But increasing concentration of wealth is an international phenomenon that has its roots in the free international mobility of capital. Rodrik only accepts climate change as an argument for global governance, as if climate change and threatening refugee crises derived from it were not enough of an argument. But there are many more, and increasingly more, global problems that require global democratic action. Branko Milanovic and Charles Kenny have listed some of them in twitter after Rodrik's last article: technology, climate, oceans, biodiversity, infectious disease, nuclear
and biological weapons, intellectual property rights, tax
evasion, "fair trade", child labor, Internet protocol, airline
regulation, time zones...

Sunday, August 14, 2016

Abstract words are social tools. They help us guide our actions, but they depend on social context. Socialism is a noble word, but there is little doubt that it has been tainted by the crimes of communist countries and the Soviet Union. And today, by the lack of respect to human rights and the economic disasters of countries like Venezuela. However, the experience of what in some countries is still called democratic socialism, and which is pretty much indistinguishable from social democracy (today criticized for its failure to offer alternatives to austerity), is quite good. No other ideology has offered more welfare for longer to more people than social democracy. Like any other abstract ideology, socialism is discredited by their zealots. Geoffrey Hodgson argues that the current direction of the British Labour Party is falling down this road. Perhaps Tony Blair and Gordon Brown could have worried, when they could, to avoid developing policies that some in their ranks thought that they should be so radically reversed. Conervatives are very good at creating commitment devices and institutional and other constraints that prevent successive policy makers from reversing their achievements. Blair and Brown did not think about this. The blog Stumbling and Mumbling has very good thoughts on what a socialist utopia could be today. It should be based on three principles. Two are the traditional ones of freedom and equality. The third is new in left wing thinking: "we must recognise that knowledge and rationality are tightly bounded (...). Socialism should be achieved by evolution, by creating stepping stones – small institutional tweaks that create the potential for bigger ones. For example, small acts of empowering people – such as worker directors or patients’ groups – might create a demand for greater power." Worker directors and in general democratic worker ownership (not as a monopoly on ownership, but as a promoted form in a diverse economy) could be more incentivized. Sometimes it has failed, sometimes it has succeeeded -like other forms of ownership. Shannon Rieger has laid out the regulatory requirements in the US for it in this piece.

-Karl Deutsch: “a nation is a group of people united by a wrong vision of the past and a hatred for their neighbours."

-This BBC documentary is a valuable insight on the referendum campaigns in the UK, both of the leave side and the remain side. It explains the role of emotions, the importance of the lack of conviction by the Labour leadership and the recklessness and arrogance of David Cameron.

-And these two articles in The Guardian explain, the first, why the British might prefer the conditions negotiated by David Cameron than whatever may emerge from the Brexit negotiations after article 50 is invoked; and the second, why it is a myth that the working class voted for Brexit (and why the truth is closer to the traditional model of the conservative managing to divide the working class -and voting nationalist themselves).

Monday, August 8, 2016

In 2013, I published in the Journal of Economic Inequality a review of "The Darwin Economy", written by Robert H. Frank. In that book, this economist explained the mechanisms of wasteful status competition, and how it can be mitigated with the public policy tool of a progressive consumption tax. Now Frank insists with the same ideas in "Success and Luck. Good Fortune and the Myth of Meritocracy." The approach this time is to give emphasys to the role of luck in being successful (and triggering wasteful cascades of status competition). Luck plays a hidden but decisive role in performance, even if talent and effort matter as well. Since luck is most probably independently distributed from talent and effort, equally talented and hardworking people may have very different levels of luck, and therefore not necessarily all the most talented and hardworking will succeed. This is very well explained in chapter 4 and through simple and very well explained simulations in a first appendix. The problem for society is that the role of luck is not always recongnized by those that succeed, which implies that they will be reluctant to support the kinds of policies that make luck possible. These policies are those of infrastructure building and public education that today allow rich people in the rich world to enjoy a lucky advantage that those in poorer regions cannot enjoy. Compared to the book of some years ago, the new contribution has interesting auto-biographical parts on the role of luck in the life of the author. It also resorts more to experimental evidence and simulations, and responds to some reactions to the first book.

Sunday, August 7, 2016

There has been a bit of soul searching but not much self-criticism among economists about the defeat of expert economic opinion in the Brexit referendum. British voters narrowly endorsed leaving the EU in spite the overwhelming majority of economists loudly saying that it was a mistake. Actually, it contrasts with what happened in the Scottish Independence referendum of 2014, where the NO vote clearly won the economic debate and actually that was decisive on the final vote. This time, perhaps without the expert economic opinion the Leave vote would have won by more. It is relevant that at the eyes of the expert community and at the eyes of almost 49% of the voters (and the majority of voters in London, Scotland, Northern Ireland, Gibraltar and the British youth), the economic argument was won by the Remain camp. Nevertheless, it is just fine that experts think about how to influence public opinion better. After all, expert advice is just one input in the factors considered by voters. Other inputs are values, emotions or impulses. John Van Reenen, Jean Pisani-Ferry and Antonio Fatas have all good pieces about all this. One just hopes that next time people like them are more effective players. It must also be admitted that it is not that frequent that almost all economists are at the same side of an argument. I finish with some of the comments by Pisani-Ferry: "As Gerald Bronner, a French sociologist, has convincingly shown, education neither increases trust in science nor diminishes the attraction of beliefs or theories that scientists regard as utter nonsense. On the contrary, more educated citizens often resent being told by experts what science regards as truth. Having had access to knowledge, they feel empowered enough to criticize the cognoscenti and develop views of their own. Climate change – which the scientific community overwhelmingly regards it as a major threat – is a case in point. According to a 2015 Pew Research survey, the three countries where concern is the weakest are the US, Australia, and Canada, whereas the three in which it is the strongest are Brazil, Peru, and Burkina Faso. Yet average years of schooling are 12.5 for the first group and six for the second. Evidently, education alone is not the reason for this difference in perception."

Wednesday, August 3, 2016

When does the slow accumulation of populist opportunism become a tsunami of bile? If things were linear, we would see it coming. We would be able to predict when are we really entering danger zone. I tend to be optimist, and I believe that checks and balances in Europe and its member states, as well as checks and balances in the US, do constrain a lot what brexiteers and a hypothetical president Trump would be able to do (and what other national-populists try to do). But when water slowly becomes cold, for most of the time it stays water, but then at zero degrees, it suddenly becomes ice. The problem with socio-political phenomena is that we do not know what is the threshold. The sad post-referendum thoughts of the great economist John Van Reenen are a bit scary. Are we already in ice territory? Here's what Van Reenen says among other things: "There are many other notable features of the Brexit vote – including the fact that Remain had a voting majority for those under 50 years of age and also in London, Scotland and Northern Ireland. It is shocking that a constitutional rupture can be made based on 37 per cent of the eligible voters. We take decades debating and prevaricating on major infrastructure projects like Heathrow and Hinkley Point, yet are prepared to gamble with something even more important for our futures on a simple one-off in-out referendum. The referendum was won on a drumbeat of anti-foreigner sentiment. It’s the same tune being played by demagogues in every corner of the globe. It’s the same tune that was played in the 1930s. It’s the same old beat that rises in volume when people are afraid. In the UK, it’s echoed by a rabidly right-wing press and unchallenged by a flaccid establishment media. Mixed by a band of unscrupulous liars and political zealots, it has become a tsunami of bile that has downed and drowned a once great nation. The only question is which other countries will now be swept along in this poisonous flood."